Velocity reinstates Singapore Airlines redemptions

[AIRwin]

Goon Phong (then SQ CEO)

Goh Choon Phong is still the CEO:

https://www.singaporeair.com/en_UK/au/about-us/information-for-investors/management-team/

 

[Mr H]

Exactly. That's why the Krisflyer-Velocity transfer program lost money for VA because most of the transfers are in the one direction (Velocity to Krisflyer).

With a PE owner now at Virgin, they'll want to stem those losses when they get around to looking at that program (eventually or if at all), and Krisflyer also has to agree to a arrangement between both parties for the program to be reinstated.

I'm not sure how it lost money for VA. VA sells 1000 Velocity points to a credit card company for (say) $10. VA buys 645 Krisflyer points from SQ for (say) $6.45. The Velocity member swaps the 1000 points for 645 Krisflyer points and VA is $3.55 ahead on the deal. Even if all the traffic is one way, both airlines come out ahead.

 

[HS-TQE]

I'm not sure how it lost money for VA. VA sells 1000 Velocity points to a credit card company for (say) $10. VA buys 645 Krisflyer points from SQ for (say) $6.45. The Velocity member swaps the 1000 points for 645 Krisflyer points and VA is $3.55 ahead on the deal. Even if all the traffic is one way, both airlines come out ahead.

Unlikely to be that way under Borghetti, knowing his track record such as the most expensive A330 leases.

That is why the transfer rate was 'devalued' just before Borghetti left VA in an attempt to stem those losses. PS was reported in the media to have allegedly include this program in his review, but Covid happened

 

[Mr H]

Unlikely to be that way under Borghetti, knowing his track record such as the most expensive A330 leases.

That is why the transfer rate was 'devalued' just before Borghetti left VA in an attempt to stem those losses. PS was reported in the media to have allegedly include this program in his review, but Covid happened

It only looks like a loss if you ignore the price at which VA sold the Velocity Points and treat them as a free good that is flowing out from VA. Sure, VA may find the Velocity points more profitable if they are spent on toasters or on VA flights that would have been running anyway, but that doesn't hide the fact that both VA and SQ would have made money on points transfers in either direction.

 

[HS-TQE]

It only looks like a loss if you ignore the price at which VA sold the Velocity Points and treat them as a free good that is flowing out from VA. Sure, VA may find the Velocity points more profitable if they are spent on toasters or on VA flights that would have been running anyway, but that doesn't hide the fact that both VA and SQ would have made money on points transfers in either direction.

Considering the main stream media reports of VA's financial losses before they closed down the transfer program, people would think VA would've kept the Krisflyer transfers going if it was providing revenue to offset the (big) losses elsewhere.

Considering the Krisflyer transfer was closed down before Covid happened suggests the one way rush from Velocity to Krisflyer was largely loss making, otherwise they would've kept it open if the one way rush was still providing revenue.

 

[Mr H]

Considering the main stream media reports of VA's financial losses before they closed down the transfer program, people would think VA would've kept the Krisflyer transfers going if it was providing revenue to offset the (big) losses elsewhere.

Considering the Krisflyer transfer was closed down before Covid happened suggests the one way rush from Velocity to Krisflyer was largely loss making, otherwise they would've kept it open if the one way rush was still providing revenue.

I suspect that was a very short term pressure - they had already sold the points and there was a sudden rush on them to exchange them for goods and services which have to be paid for at the point of redemption. But in the long term, Velocity should be highly profitable because the cost of redemptions is less than the income they get from selling the points.

 

[NoName]

I'm not sure how it lost money for VA. VA sells 1000 Velocity points to a credit card company for (say) $10. VA buys 645 Krisflyer points from SQ for (say) $6.45. The Velocity member swaps the 1000 points for 645 Krisflyer points and VA is $3.55 ahead on the deal. Even if all the traffic is one way, both airlines come out ahead.

This line of thinking about VA losing money on the transfers always puzzled me. It made absolutely no sense at all. Your explanation sums up the likely reality nicely.

 

[dajop]

I'm not sure how it lost money for VA. VA sells 1000 Velocity points to a credit card company for (say) $10. VA buys 645 Krisflyer points from SQ for (say) $6.45. The Velocity member swaps the 1000 points for 645 Krisflyer points and VA is $3.55 ahead on the deal. Even if all the traffic is one way, both airlines come out ahead.

The big assumption her is that VA is selling points to banks at the same rate it is buying from SQ.

But the relative costs can change things. If VA is selling points to the bank for 0.5c/pt, but buying KF points from SQ at 0.8c/pt, instead of producing a profit of $3.55 the generate a loss of $0.16 for every 1000 pts. One presumes that this is not the case, and VA were in the end paying to SQ no more than 1.55x what they receive from banks. (in the 0.5c/pt example, 0.775c/pt).

Also it may not all be about profit, what selling points to banks provides is also cash flow, if the outgoings to SQ become too significant, then the cash flow benefit could diminish the value of the whole scheme.

 

[MooTime]

Interesting posts.

My 2c
If VA can't transfer to SQ they will use their points on VA flights (generally assist from toasters). Revenue for VA.

If the VA CAN transfer to SQ they will use their points on SQ flights. Revenue for SQ.

Not sure how relevant above is, but very complex puzzle this transfer deal & we can only speculate on who wins, but I'm sure as the pope being a Catholic that one wins more than the other. And the loser may be holding up the transfer from returning.

 

[jakeseven7]

Which was also money losing and had a minor contribution towards VA 1.0's bankruptcy, thus less of a priority but still considered up there to ensure it "doesn't lose money" under the new regime.

But Velocity was not “bankrupted” the airline was put into administration not Velocity FF?

 

[HS-TQE]

But Velocity was not “bankrupted” the airline was put into administration not Velocity FF?

Hence minor contribution. VA still had to pay SQ cash for the points from their FF programs due to the transfers largely being one way, hence a loss.

Bain will not want revenue going to a current (non codeshsre) partner and a former part owner unless if they get something back in return, especially for a initiative that was introduced but botched finacially due to a former CEOs ego.

 

[Mr H]

The big assumption her is that VA is selling points to banks at the same rate it is buying from SQ.

Is that an unreasonable assumption? Amex offers redemption rates of two Amex Rewards for one point in both the Velocity and Krisflyer programmes. So if Amex can acquire the points in each programme for a (presumably) similar rate then you would imagine the programmes themselves would buy and sell from each other at roughly similar rates.

 

[jakeseven7]

Hence minor contribution. VA still had to pay SQ cash for the points from their FF programs due to the transfers largely being one way, hence a loss.

Bain will not want revenue going to a current (non codeshsre) partner and a former part owner unless if they get something back in return, especially for a initiative that was introduced but botched finacially due to a former CEOs ego.

I’m not sure the company structure pre-administration actually makes your statement sensical because they were actually different companies.

I don’t know what Bain has done with Velocity these days though as it’s all closed books.

 

[JohnK]

I haven't been following this thread and haven't really used Velocity for 2+ years.

Have been trying to book a QF award to return BKK-BNE end September and availability is limited to either JQ to MEL then BNE or JQ from SIN to MEL then BNE.

Last night I decided to check SQ and found economy award for 28,000 Krisflyer miles + ~$110 and was looking for a way to transfer 43,400 Velocity points to Krisflyer so I can book.

Checked same award with Velocity and cost 35,000 Velocity points + $106.15 which was a good outcome.

 

[Mr H]

I haven't been following this thread and haven't really used Velocity for 2+ years.

Have been trying to book a QF award to return BKK-BNE end September and availability is limited to either JQ to MEL then BNE or JQ from SIN to MEL then BNE.

Last night I decided to check SQ and found economy award for 28,000 Krisflyer miles + ~$110 and was looking for a way to transfer 43,400 Velocity points to Krisflyer so I can book.

Checked same award with Velocity and cost 35,000 Velocity points + $106.15 which was a good outcome.

Doubly good outcome since the transfer from VA to KF has been suspended for over two years. IMO the value in transferring to KF was to access premium SQ cabins or to redeem on *A carriers.

 

[Kimster]

I haven't been following this thread and haven't really used Velocity for 2+ years.

Have been trying to book a QF award to return BKK-BNE end September and availability is limited to either JQ to MEL then BNE or JQ from SIN to MEL then BNE.

Last night I decided to check SQ and found economy award for 28,000 Krisflyer miles + ~$110 and was looking for a way to transfer 43,400 Velocity points to Krisflyer so I can book.

Checked same award with Velocity and cost 35,000 Velocity points + $106.15 which was a good outcome.

I recently snagged 3 J reward seats from Sin to ADL using velocity points for Jan 23 @ 58000 points each plus taxes, as there was no availability to Mel from Sin. With bonus points promotions in velocity - 58,000 points to fly on Sin metal is pretty good. Looks like we are getting to a sweet spot with velocity redemptions - both on availability and point requirements

 

[HS-TQE]

I’m not sure the company structure pre-administration actually makes your statement sensical because they were actually different companies.

I don’t know what Bain has done with Velocity these days though as it’s all closed books.

VFF and VA (the airline) may had been different companies, however Velocity was still a subsidiary of VA Holdings Pty Ltd, therefore any losses made through VFF (no matter if it's one or many) still trickles through to VA Holdings.

Going by the posts here, both companies make revenue from the VFF/KF transfer however as it's pointed out most of the traffic is largely one way and one company largely "Wins more than the other"

Considering the traffic is largely one way from VFF to KF, Bain will want to make sure they'll "WIN AT ALL COSTS" when it comes to lesser priorities such as the VFF/KF transfers, they'll either want to make SQ/KF pay VA $$ for the privilege of the program therefore Bain makes money from it, or alternatively make the passengers pay for it through surcharges.

If SQ/KF tells VA/VFF/Bain to get stuffed on the agreement, then it wouldn't be surprising if the transfer disappears/gets cancelled entirely and quietly.

 

[Mr H]

VFF and VA (the airline) may had been different companies, however Velocity was still a subsidiary of VA Holdings Pty Ltd, therefore any losses made through VFF (no matter if it's one or many) still trickles through to VA Holdings.

I don't believe VFF makes a loss. I believe it is highly profitable and always has been.

Going by the posts here, both companies make revenue from the VFF/KF transfer however as it's pointed out most of the traffic is largely one way and one company largely "Wins more than the other"

The traffic may be one way. In a similar way, the exchange of money and goods is all one way at my local Coles, but both Coles and their customers find it a beneficial arrangement. Neither party wins more than the other. Similarly, SQ sold KF points to VA for money and both partners did well from the trade.

... or alternatively make the passengers pay for it through surcharges.

Passengers already paid - they gave a set number of VFF points in return for a proposed number of KF points. I am sure VA set the rate at one that was highly profitable for them - and indeed they changed the rate when they saw an opportunity to make it even more profitable.

If SQ/KF tells VA/VFF/Bain to get stuffed on the agreement, then it wouldn't be surprising if the transfer disappears/gets cancelled entirely and quietly.

I would think the exchange was cancelled because VFF saw a 'run on the bank' as everyone wanted to cash out their points at the same time which would have caused cash flow issues. I imagine VFF would want to make sure they have a sound offering for members to redeem their VFF points on VA issued tickets before they introduce transfers again - because even though I am confident the exchanges were profitable, I am sure redemption on VA tix is the optimum outcome for VA.

 

[HS-TQE]

I don't believe VFF makes a loss. I believe it is highly profitable and always has been.

The separate company (VFF) overall is profitable, but like any other company they have profitable streams and loss streams.

For example VA-i, that company is loss-making overall, but they had few profitable routes prior to administration such as LAX and arguably NAN. However, if there are very few profitable streams that can't prop up the losses overall, it makes sense to downsize (which they did through only flying to NAN, DPS and ZQN) if not close the subsidiary. The income from LAX alone couldn't sustain the losses elsewhere (HKG, AUH, etc) on the old long haul division.

Neither party wins more than the other. Similarly, SQ sold KF points to VA for money and both partners did well from the trade.

However this is Private Equity we're talking here. Bain being one of the leading PE firms, it's "WIN AT ALL COSTS" from their end. Considering the transfers are less of a priority for them, I'm sure when they'll eventually come around to it, they'll apply their "win at all costs" approach after looking at the past results of VFF/KF transfers, and knowing the traffic is largely one way and mostly benefitted SQ/KF more, an agreement drawn up by Bain will likely want them to "benefit" them more than SQ/KF, even if it may possibly "screw" SQ/KF over.

Passengers already paid - they gave a set number of VFF points in return for a proposed number of KF points. I am sure VA set the rate at one that was highly profitable for them - and indeed they changed the rate when they saw an opportunity to make it even more profitable.

This was called a 'devaluation' from a passenger side of view. A lot of people were complaining about that when it was announced. I do note the ratio from the other side (KF to VFF) was largely left untouched.
It wouldn't surprise me if it was done to attempt to make the program more 'sustainable' on both ends, if not stem the losses the program that may had affected VFF.

I would think the exchange was cancelled because VFF saw a 'run on the bank' as everyone wanted to cash out their points at the same time which would have caused cash flow issues. I imagine VFF would want to make sure they have a sound offering for members to redeem their VFF points on VA issued tickets before they introduce transfers again - because even though I am confident the exchanges were profitable, I am sure redemption on VA tix is the optimum outcome for VA.

I'm sure they'll still finalising their partners atm and JH was on record of willing to work with anyone that support their aims. VFF will adjust accordingly should VA pick up more airline partners before going onto other priorities.

 

[Mr H]

Bain being one of the leading PE firms, it's "WIN AT ALL COSTS" from their end. Considering the transfers are less of a priority for them, I'm sure when they'll eventually come around to it, they'll apply their "win at all costs" approach after looking at the past results of VFF/KF transfers, and knowing the traffic is largely one way and mostly benefitted SQ/KF more, an agreement drawn up by Bain will likely want them to "benefit" them more than SQ/KF, even if it may possibly "screw" SQ/KF over.

You keep saying that one side won more than the other. I really don't see evidence to support that. SQ sells KF points to VFF for a fixed cash price. VFF decides how to price the KF points when selling them on to their members. Both parties set the prices as they wish - and they would be fools to set the price at a rate that made a loss. Neither party is screwing the other over.

This was called a 'devaluation' from a passenger side of view. A lot of people were complaining about that when it was announced. I do note the ratio from the other side (KF to VFF) was largely left untouched.

That is simply incorrect. The exchange ratios were always the same, both ways.

Program Update | Velocity Frequent Flyer

I'm sure they'll still finalising their partners atm and JH was on record of willing to work with anyone that support their aims. VFF will adjust accordingly should VA pick up more airline partners before going onto other priorities.

VFF needs a good value proposition if it wants to sell Velocity points to the public. At the moment the options for spending them are pretty limited and some people (e.g. me) are collecting them right now simply because we think they might become more useful in the future. But I am certainly not going to use them on domestic flights or flights to the USA going to places that are similar but not quite as wonderful as Melbourne.